Mixed Deck — All SCA Topics Flashcards

What is a 'discretionary investment management' service?

Answer: A service where the investment manager makes investment decisions on behalf of the client without requiring approval for each transaction

Discretionary investment management means the fund manager has authority to make investment decisions on the client's behalf without needing prior approval for each trade, within agreed parameters. This requires SCA licensing.

What is 'front running' in securities markets?

Answer: Trading securities for one's own account before executing a large client order, benefiting from the price movement that the client order will cause

Front running is the prohibited practice where a broker or trader executes trades in their own account knowing that a large client order is about to move the market price, allowing them to profit at the client's expense.

Which of the following best describes the concept of 'market manipulation' under UAE law?

Answer: Deliberately creating artificial prices or trading volumes to deceive investors

Market manipulation involves deliberate actions to create artificial prices, false trading activity, or misleading impressions about securities to deceive investors. It is prohibited under UAE securities law and subject to criminal penalties.

What is 'enhanced due diligence' (EDD) and when is it applied?

Answer: More intensive verification and monitoring applied to higher-risk customers such as PEPs, complex structures, or high-risk jurisdictions

EDD is a more rigorous level of customer due diligence applied when the risk of money laundering is higher — for example, politically exposed persons (PEPs), customers from high-risk jurisdictions, or complex ownership structures.

What is a futures contract?

Answer: A legally binding agreement to buy or sell a specific asset at a predetermined price on a specific future date

A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an asset at a predetermined price on a specific future date. Both parties are obligated to fulfill the contract.

What does 'disclosure' mean in UAE securities regulation?

Answer: The requirement for listed companies to publicly release material information that may affect their securities' prices

Disclosure requirements mandate that listed companies publicly release all material information — financial results, major events, ownership changes — that could affect their share price, ensuring all investors have equal access to relevant information.

What are the trading hours for UAE securities exchanges?

Answer: Pre-opening session followed by continuous trading from 10:00 AM to 2:00 PM UAE time (Sunday to Thursday)

UAE exchanges operate Sunday to Thursday with a pre-opening session for order entry, followed by continuous trading from 10:00 AM to 2:00 PM UAE time, with a closing auction session.

What does 'Delivery versus Payment' (DvP) mean in the context of securities settlement?

Answer: Securities are transferred and cash is paid simultaneously, eliminating principal risk

DvP ensures the irrevocable transfer of securities occurs simultaneously with the irrevocable transfer of funds, eliminating the risk that one party delivers without receiving the corresponding value.

What is the UAE's Financial Intelligence Unit (FIU)?

Answer: The UAE's central body (within the Central Bank) that receives, analyzes, and disseminates financial intelligence reports including STRs from reporting entities

The UAE FIU (now called the Anti-Money Laundering and Suspicious Cases Unit - AMLSCU) is housed within the UAE Central Bank. It receives Suspicious Transaction Reports (STRs) from all reporting entities, analyzes them, and shares intelligence with law enforcement.

What is a 'robo-advisor' and how does it fit into SCA regulation?

Answer: An algorithm-driven digital investment advisory service; still subject to SCA regulations requiring appropriate licensing and client suitability assessments

Robo-advisors provide automated, algorithm-based investment advice and portfolio management. Despite being digital, they provide regulated investment services and must be operated by SCA-licensed entities and comply with all relevant regulations including suitability.

What fund governance requirements does the SCA establish?

Answer: Independent board members, conflicts of interest management, valuation policies, risk management frameworks, and investor communication standards

SCA fund governance requires independent board representation, conflicts of interest policies, independent valuation procedures, risk management frameworks, regular investor communication, and compliance monitoring.

What is 'layering' in market manipulation?

Answer: Placing multiple orders at different price levels that are not intended to be executed, to create a false appearance of market depth

Layering involves placing multiple non-bona fide orders at various price levels to create an illusion of market depth and interest, then canceling them after other traders react. It is a form of spoofing and is prohibited.

What is the purpose of the SCA's anti-money laundering (AML) requirements for licensed firms?

Answer: To prevent the use of capital markets to launder illegally obtained funds and finance terrorism

AML requirements in capital markets prevent criminals from using securities transactions to launder proceeds of crime or finance terrorism. Licensed firms must implement AML programs, conduct customer due diligence, and report suspicious transactions.

What action can the SCA take if a licensed firm violates its regulations?

Answer: The SCA can suspend or revoke the license, impose fines, and refer the case for criminal prosecution

The SCA has broad enforcement powers including: issuing warnings, imposing financial penalties, suspending or revoking licenses, barring individuals from the market, and referring serious violations to the public prosecutor for criminal action.

What audit requirements does the SCA impose on listed companies?

Answer: Annual audit by SCA-approved external auditors, audit committee oversight, auditor rotation requirements, and independence standards

SCA requires annual external audit by SCA-approved audit firms, audit committee oversight of the audit process, auditor rotation (firm and partner), auditor independence standards, and timely filing of audited financial statements.

What AML/CFT obligations does the SCA impose on securities market participants?

Answer: Customer due diligence, ongoing monitoring, suspicious transaction reporting to FIU, record keeping, and compliance officer appointment

SCA-regulated firms must implement comprehensive AML/CFT programs: customer due diligence and KYC, ongoing transaction monitoring, suspicious activity reporting to the FIU, record retention, staff training, and MLRO appointment.

What constitutes insider trading under SCA regulations?

Answer: Trading securities based on material non-public information obtained through a privileged position, or tipping others to trade on such information

SCA regulations define insider trading as buying or selling securities based on material non-public information, or communicating such information to others for trading purposes, both carrying severe penalties.

Which categories of investment service require SCA licensing?

Answer: Brokerage, investment management, investment advisory, market making, and other services defined by SCA regulations

A broad range of investment services require SCA licensing including brokerage, investment management (managing client funds), investment advisory, market making, underwriting, and others as defined in SCA regulations.

What are the SCA regulations on real estate investment trusts (REITs)?

Answer: REITs must be SCA-registered, invest primarily in income-producing real estate, distribute a minimum percentage of income as dividends, and meet disclosure requirements

SCA-regulated REITs must invest primarily in income-generating real estate, distribute at least 80% of net income as dividends, maintain minimum asset values, provide regular valuation reports, and meet ongoing disclosure requirements.

What does 'suitability' mean in investment advisory compliance?

Answer: The requirement to recommend only investments appropriate for the client's financial situation, objectives, risk tolerance, and knowledge

Suitability requires licensed advisors to assess each client's financial situation, investment objectives, risk tolerance, and experience, and to only recommend investments appropriate to that specific client's profile.